Take-Two Gains Ground on Electronic Arts

Lower prices from the maker of NFL video games are heading its larger rival off at the pass.

That problem could be compounded if Take-Two's price-undercutting plan proves successful with other sports titles. During the holidays, EA sells about 1.5 million copies of Madden and another 1.5 million of other sports games, said Pachter. EA risks losing about one-third of those 3 million unit sales, or some $20 million to $40 million in revenue, he estimated.

Because Take-Two sells its titles at a much lower price point, it could see a windfall of some $8 million to $16 million in revenue if it lures customers from EA, he said.

Representatives from both companies didn't respond to requests for comment.

The football battle "could set a tone for the other sports franchises," said McNealy. "Watching the retail sales of Madden in November is going to be critical," he added. (American Technology Research doesn't have an investment banking arm and McNealy doesn't own shares of EA or Take-Two.)

Long term, EA also could take a hit. Take-Two partner Sega produced some high-quality sports games in the past, said Dalek's Spiegel, and already had access to the well-known ESPN brand. The problem was getting people to try them, he said. By cutting prices, they've managed to overcome that last hurdle.

Now that gamers are trying the ESPN games, Take-Two might very well be able to raise prices next year -- and still keep the bulk of its customers.

"This was the best strategy for competing in that space," Spiegel said. "Next year will be a real test."

EA already is responding to the challenge. The company has cut the opening price on its forthcoming NBA Live 2005 game by $10 to $39.95, analysts note. Some analysts expect EA to drop the price on its NHL 2005 game also (especially in light of the sport's lockout status) -- and to possibly cut its price on Madden in time for the holiday season.